# Accounting 201 Exam 3

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### FIFO LIFO

which inventory costing method most closely approximates current cost for each of the following: ending inventory, cost of goods sold
a. FIFO FIFO
b. FIFO LIFO
c. LIFO FIFO
d. LIFO LIFO

### FIFO

Which inventory costing method most closely approximates current cost for ending inventory?

### LIFO

Which inventory costing method most closely approximates current cost for cost of goods sold?

### Aging of accounts receivable method

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and their length of time past due is the

### What is the depreciation base to use for the asset? What is the asset's useful life? What method of cost apportionment is best for this asset?

What are the basic questions that must be answered before the amount of depreciation charge can be computed?

### Straight line method or production or use method

Net income is understated if, in the first year, estimated salvage value is excluded from the depreciation computation using the:

### No effect on net income and no effect on total assets

On October 29 of the current year, a company concluded that a customer's \$4,400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on this company's net income and total assets assuming the allowance method is used to account for bad debts?

### Straight line method

depreciation is calculated by subtracting salvage value from the cost of the plant asset and then dividing the result by the useful life. When useful life is measured in years, the resulting amount is the annual depreciation expense for the asset.

### units of production method

depreciation is calculated by subtracting salvage value from the cost of the plant asset and then dividing the result by the useful life in units. The resulting amount is the depreciation expense per unit. That amount is multiplied by the number of units produced during each accounting period to determine the total amount of depreciation expense for that period.

### double declining

depreciation method uses twice the straight-line rate (100%/useful life in years) multiplied by the beginning of period book value of the asset. The resulting amount is the depreciation expense for that period.

### first step

Step in the accounting process for asset disposals: bring the amount of depreciation up to date

### second step

step in the accounting process for asset disposals: to then remove the cost of the asset and it's related accumulated depreciation from the accounting records

### third step

step in the accounting process for asset disposals: to recognize the amount of cash and/or other assets involved in the transaction

### fourth step

step in the accounting process for asset disposals: record any gain or loss from the asset disposal by comparing the asset book value to the market value of any asset received

### Credit

Allowance for doubtful accounts (D or C)

### FIFO

Which inventory method maximizes net income?

### FIFO, because the last bought one is the closest to current market price. Highest Ending inventory, because EI goes to balance sheet

Which inventory method produces the most meaningful inventory amount for the balance sheet?

### LIFO, because lowest taxes

inventory cost method that maximizes the company's cash flow, why?

### Ending Inventory

=Beginning Inventory + Purchases - Cost of goods sold

### = cost-salvage value / expected production value

Depreciation Rate used in production output depreciation method

### = depreciation rate x # of units

Deprecation expense used in production output depreciation method

### = (1/est. useful life) x 2

Depreciation ratio used in double declining balance depreciation method

### = book value x depreciation ratio

depreciation expense used in double declining balance method

### = (cost of asset @ aquisition - salvage value) / (est. useful life)

depreciation expense used in straight line depreciation method

### salvage value

cannot depreciate below

### balance sheet; assets

Accumulated depreciation goes to _____ ______ as a contra assets and decreases ____.

### net income

smallest depreciation expense leads to the highest ___ ___.

### allowance for doubtful accounts

is a contra asset

### accounts receivable

are amounts due from customers for credit sales

aka uncollectible accounts

### direct write-off method and allowance method

companies use two methods to account for uncollectible accounts:
1)
2)

### = (beginning net accounts receivable + ending net accounts receivable) / 2

Net Average Accounts Receivable formula

### = Net sales / Net average accounts receivable

Receivable turnover ratio formula

### Receivable turnover ratio

how many times you can create your sales in accounts receivable... do not want it to be low.

Example: